Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to determine how much of your income is available for a monthly home loan payment after all your other recurring debt obligations have been met.
How to figure the qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
For example:
With a 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage loan you can afford.
At BeneGroup, Inc., we answer questions about qualifying all the time. Give us a call at 4083956018.